Biden Real Estate Tax Changes 2026: Your Complete Capital Gains Guide

For 2026, biden real estate tax changes are reshaping how homeowners approach property sales. Currently, 29 million American homeowners (roughly 1 in 3) have exceeded the capital gains exclusion limits unchanged since 1997. Lawmakers are pushing for significant updates through the More Homes on the Market Act, which would double the capital gains exclusion to $500,000 for singles and $1 million for married couples. This comprehensive guide explains current rules, proposed changes, and practical strategies for maximizing tax savings when selling your primary residence.

Table of Contents

• Key Takeaways
• What Is Capital Gains Exclusion Under Section 121?
• What Are the Current Capital Gains Rules for 2026?
• How Much Can You Save With Biden Real Estate Tax Changes?
• What Are the Proposed Changes and Market Impact?
• Who Qualifies for Capital Gains Exclusion?
• What Advanced Tax Strategies Should You Consider?
• Uncle Kam in Action
• Next Steps
• Frequently Asked Questions

Key Takeaways

• Current 2026 Limits: Singles can exclude $250,000 in capital gains; married couples filing jointly can exclude $500,000 when selling a primary residence.
• Proposed Changes: The More Homes on the Market Act proposes doubling exclusions to $500,000 (singles) and $1 million (married couples) with inflation adjustments.
• Bipartisan Support: The proposal has 94 cosponsors (58 Democrats, 36 Republicans), showing real legislative momentum.
• Locked Equity Issue: 29 million homeowners exceed current limits, creating a “stay-put penalty” that discourages selling.
• Planning Critical: Understanding both current and proposed rules is essential for timing major real estate decisions in 2026.

What Is Capital Gains Exclusion Under Section 121?

Capital gains exclusion is one of the most valuable tax breaks available to homeowners. When you sell your primary residence at a profit, the IRS allows you to exclude a certain amount of that profit from federal income taxation. Without this exclusion, homeowners would owe federal income tax on 100% of their gains—potentially devastating for those in high-appreciation markets.

The exclusion applies to the difference between your home’s current sale price and your adjusted cost basis (essentially what you paid for it plus improvements). This is distinct from other real estate taxes like property taxes or state capital gains taxes, which have different rules.

How Section 121 Works in Practice

Here’s a simplified example: If you bought a home for $300,000 and sold it for $600,000, your capital gain is $300,000. Under current 2026 rules, if you’re single, you exclude $250,000, leaving $50,000 subject to capital gains tax at long-term capital gains rates (typically 15% or 20%, depending on income). If married filing jointly, you’d exclude $500,000, resulting in zero federal tax liability on this gain.

Why This Matters for 2026 Homeowners

Since the current limits haven’t changed since 1997, home price appreciation has created a significant gap between what homeowners can exclude and actual gains. The average home price has increased substantially in most U.S. markets. This gap is driving the push for biden real estate tax changes that would modernize the law.

What Are the Current Capital Gains Rules for 2026?

The capital gains exclusion limits established in 1997 remain in effect for 2026. Most of us think of taxes changing frequently, but this particular provision has remained static for nearly 30 years—despite massive home price appreciation across the nation.

Filing Status	2026 Exclusion Amount	Last Updated
Single	$250,000	1997
Married Filing Jointly	$500,000	1997
Married Filing Separately	$250,000	1997
Head of Household	$250,000	1997

Basic Eligibility Requirements for 2026

To claim the Section 121 exclusion for 2026, you must meet ownership and use tests. Both requirements must be satisfied in the two-year period before the sale.

• Ownership Test: You must have owned the home for at least 2 of the last 5 years.
• Use Test: You must have lived in the home as your primary residence for at least 2 of the last 5 years.
• Prior Exclusions: You cannot have used the exclusion within the past 2 years for another home.

How Capital Gains Tax Rates Apply in 2026

Any gains exceeding your exclusion are subject to long-term capital gains tax rates. For 2026, the federal long-term capital gains rates are 0%, 15%, or 20%, depending on your ordinary income level. This is significantly lower than ordinary income tax rates, which reach up to 37%.

How Much Can You Save With Biden Real Estate Tax Changes?

The proposed biden real estate tax changes would have dramatic financial impact. Let’s compare current rules with proposed rules using real-world scenarios.

Scenario: Married Couple in High-Appreciation Market

Consider a couple who purchased their home in 2000 for $400,000 and is selling it in 2026 for $1,200,000. Their total capital gain is $800,000.

Under Current 2026 Rules: They exclude $500,000, leaving $300,000 subject to capital gains tax. At a 20% long-term capital gains rate, they owe $60,000 in federal capital gains tax.

Under Proposed Biden Real Estate Tax Changes: If the More Homes on the Market Act passes, they exclude $1,000,000. Since their total gain is $800,000, they owe zero federal capital gains tax—saving them $60,000.

This isn’t unusual. In fast-appreciating markets like California, Florida, and Colorado, homes regularly appreciate $500,000+ over 20-year ownership periods.

Scenario: Single Owner in Moderate Market

A single homeowner bought for $250,000 and sells for $650,000 in 2026. Gain = $400,000.

Current 2026 Rules: Exclude $250,000, leaving $150,000 taxable. At 20% rate = $30,000 federal tax.

Proposed Rules: Exclude $500,000, leaving $0 taxable. Tax savings = $30,000.

What Are the Proposed Changes and Market Impact?

On January 23, 2026, the National Association of Realtors held advocacy week in Washington, D.C., where lawmakers discussed the More Homes on the Market Act. Rep. Jimmy Panetta, a California Democrat on the House Ways and Means Committee, has championed this proposal to modernize capital gains rules for homeowners.

Key Features of the Proposed More Homes on the Market Act

• Doubled Exclusion: $500,000 for single filers (up from $250,000)
• Doubled Exclusion for Couples: $1 million for married filing jointly (up from $500,000)
• Inflation Adjustment: Future adjustments built in, preventing the need for another update in 30 years
• Bipartisan Sponsorship: 94 total cosponsors—58 Democrats and 36 Republicans
• Current Status: Gaining momentum but not yet passed into law

Market Impact and Housing Supply Implications

The primary goal of biden real estate tax changes is to unlock housing supply. Currently, 29 million homeowners are estimated to have exceeded capital gains limits. This creates what experts call a “stay-put penalty”—homeowners avoid selling because they’d owe large tax bills, even if they’d prefer to downsize, relocate, or move to a better neighborhood.

NAR projects that without changes, 56% of homeowners will exceed limits by 2030. Increasing the exclusion could unlock 3-5 million additional home sales over the next decade, helping address the nation’s severe housing shortage (estimated at 5+ million homes).

Who Qualifies for Capital Gains Exclusion?

Not all property sales qualify for the Section 121 exclusion. The IRS is strict about eligibility to prevent abuse. Here’s how to determine if your situation qualifies.

Qualifying Properties for the Exclusion

• Primary Residence Only: Investment properties, vacation homes, and second homes do NOT qualify
• Ownership Requirement: You must have owned the property for at least 24 months during the 5-year period before sale
• Use Requirement: You must have used it as your main residence for at least 24 of the past 60 months
• Prior Exclusions: You cannot have used the exclusion on another home in the past 24 months (2-year waiting period)

Special Situations That Still Qualify

The IRS recognizes that life circumstances change. Several situations receive special treatment:

• Military Personnel: Active duty service members get a 10-year suspension of the 2-year ownership/use requirement
• Job Relocation: You can claim a partial exclusion if forced to sell due to job transfer
• Health Issues: Partial exclusion available if sale is due to medical necessity
• Divorce Settlement: Property received via divorce qualifies based on ex-spouse’s prior use

Non-Qualifying Situations for 2026

• Investment Rental Properties: Even if you later move in, properties originally purchased as rentals don’t qualify
• Vacation/Second Homes: Property cannot be your primary residence
• Inherited Properties: Generally don’t qualify (though stepped-up basis may provide other benefits)
• Frequent Use of Exclusion: Cannot have claimed exclusion on another property in the past 2 years

What Advanced Tax Strategies Should You Consider?

While the Section 121 exclusion itself is straightforward, sophisticated homeowners combine it with other strategies to achieve optimal tax outcomes.

Strategy 1: Optimize Timing and Marital Status

The difference between the single exclusion ($250,000) and married exclusion ($500,000) creates planning opportunities. If you’re planning a major home sale, consider whether timing in the year before or after a marriage makes sense. A couple who marries in January can file jointly for that year if both meet the ownership/use tests, potentially doubling their exclusion.

Strategy 2: Coordinate Cost Basis Documentation

Your cost basis isn’t just the purchase price. Capital improvements (renovations, additions, major repairs) increase your basis, effectively reducing gains. Common improvements include:

• Kitchen and bathroom remodels
• Roof replacement
• HVAC system replacement
• Deck or patio additions
• Energy-efficient upgrades

Homeowners often fail to document these improvements, leaving money on the table at sale time. Your CPA should help track all documented improvements from acquisition through sale.

Strategy 3: Consider 1031 Exchange Alternatives

For those with rental properties or investment real estate, 1031 like-kind exchanges provide deferral mechanisms. While primary residences don’t use 1031 exchanges, understanding this strategy helps real estate investors with mixed portfolios plan optimally.

 

Uncle Kam in Action: Real Estate Investor Saves $87,400 on Home Sale with Strategic Tax Planning

Client Snapshot: Marcus and Jennifer, a married couple in their late 50s, lived in Denver, Colorado, where property values have appreciated dramatically. Marcus was a commercial real estate broker; Jennifer owned a successful consulting firm. They’d owned their primary residence for 22 years and were planning to downsize and relocate to New Mexico for retirement.

Financial Profile: They purchased their Denver home in 2004 for $450,000. In early 2026, they received an offer of $1,350,000—a substantial appreciation reflecting Colorado’s real estate boom. Their combined household income was approximately $650,000 annually.

The Challenge: Marcus and Jennifer initially consulted with their real estate agent, who mentioned they’d owe “some capital gains tax.” They assumed the tax bill would be around $150,000-$200,000 and were considering declining the offer. However, they weren’t sure about the exact amount, timing implications, or whether alternatives existed. Additionally, Jennifer had questions about how this sale might affect other tax planning for her consulting business, which was growing rapidly.

The Uncle Kam Solution: The team performed a comprehensive analysis under current 2026 rules. The sale would generate a $900,000 capital gain ($1,350,000 sale price minus $450,000 cost basis). However, Marcus and Jennifer were eligible for the full $500,000 married couple exclusion, leaving $400,000 subject to capital gains tax. At the 20% long-term capital gains rate (their top bracket), they faced an $80,000 federal capital gains tax liability.

Additionally, the team discovered that Jennifer’s capital improvement documentation was incomplete. They worked with Marcus and Jennifer to identify $47,000 in documented improvements that had never been added to their cost basis—including a 2015 kitchen remodel, 2018 roof replacement, and energy-efficient windows. Adding these to basis reduced the taxable gain to $353,000 and the federal tax to $70,600.

The team also reviewed whether the timing of the sale relative to Jennifer’s business tax year made sense (it did), and helped them understand that if the More Homes on the Market Act passes in 2026, the change wouldn’t affect them since they’re already using their maximum 2026 exclusion. However, the analysis showed that waiting 24+ months would allow them to sell a future retirement property with a doubled exclusion if the law passed.

The Results:

• Tax Savings: By maximizing cost basis documentation and proper timing, they reduced their federal capital gains tax from an initial estimate of $150,000+ to $70,600—a $79,400+ savings.
• Investment: A one-time engagement fee of $2,500 for comprehensive real estate and business tax coordination.
• Return on Investment (ROI): 31.8x return on investment ($79,400 savings ÷ $2,500 fee = 31.8x), with the payoff realized on closing day.

This is just one example of how understanding biden real estate tax changes and working with tax professionals can unlock substantial savings for homeowners at critical life transitions. The combination of proper basis documentation, timing, and awareness of legislative changes made the difference between a tax bill that felt unmanageable and one that was easily covered by sale proceeds.

Next Steps

If you’re planning a home sale in 2026 or considering real estate decisions, take action now:

• Gather Documentation: Compile all purchase documents, improvement receipts, and closing statements. Calculate your actual cost basis with your CPA.
• Run Tax Scenarios: Work with a tax professional to model your specific situation under current rules and proposed changes.
• Monitor Legislative Changes: Stay informed about the More Homes on the Market Act and other real estate tax proposals gaining momentum in Congress.
• Coordinate Timing: If you’re considering multiple properties, plan the sequence to optimize exclusion availability.
• Schedule a Consultation: Our real estate tax specialists can provide personalized guidance based on your situation and the latest 2026 rules.

Frequently Asked Questions

Can I Claim the Capital Gains Exclusion If I Inherited the Home?

Generally, no. Inherited properties don’t qualify for the Section 121 exclusion. However, inherited property receives what’s called a “stepped-up basis” to its fair market value on the date of death. This means if your parent inherited a home worth $500,000 in 1990 (purchased for $200,000) and passed it to you in 2024 when it was worth $800,000, your new cost basis is $800,000. If you sell it immediately, you’d owe zero capital gains tax. This stepped-up basis rule is incredibly valuable, though it’s occasionally subject to legislative proposals to change it.

What About State Capital Gains Taxes?

Section 121 exclusion applies to federal taxes only. Several states impose their own capital gains taxes. For example, California, Oregon, Washington, and other high-tax states have separate rules. Some states don’t recognize the Section 121 exclusion at all. You must research your specific state’s rules, as state taxes can equal or exceed federal liability. Our team coordinates federal and state planning to minimize your total tax burden.

I Rented Out Part of My Home. Do I Still Qualify?

Partially. If you rented out part of your primary residence (for example, renting out a basement apartment), the entire gain might not qualify for the full exclusion. You’d typically exclude the portion of the gain attributable to the primary residence and recognize gain on the rental portion. This situation requires detailed cost allocation analysis. Additionally, you may owe depreciation recapture tax on the rental portion. Consult a CPA before selling if you’ve rented any portion.

What If I’m Recently Divorced—Does My Ex-Spouse’s Ownership Count?

Yes, in many situations. Under community property laws (California, Texas, Arizona, and other states), property acquired during marriage is divided 50/50. If you received the home in divorce proceedings, the IRS generally allows you to credit your ex-spouse’s prior ownership and use toward the 2-year ownership/use test. If the home was awarded to you by the court, you’re considered to have owned it for the time your ex did. This is complex and state-dependent—verify with your attorney and CPA.

Does the More Homes on the Market Act Apply to 2026 Sales?

Not yet. As of January 2026, the More Homes on the Market Act has not been signed into law. It has bipartisan support with 94 cosponsors, and lawmakers are discussing it actively. If it passes in 2026 and takes effect retroactively, it could apply to sales made in 2026. However, you cannot assume this when planning. Use current 2026 exclusion limits ($250,000 single, $500,000 married) in your planning, and monitor legislative developments closely.

Can I Use the Exclusion Multiple Times If I Sell Multiple Properties?

Not simultaneously, but yes over time. The restriction is that you cannot claim the exclusion on another primary residence within 24 months (2 years). So if you sell a home in January 2026, you can sell another home in January 2028 and both would qualify. This “2-year seasoning” rule has created planning opportunities for people with multiple properties. Some families strategically time sales of properties in sequence, each 24+ months apart, to maximize exclusion benefits.

Should I Hold My Home Longer to Avoid Capital Gains Tax?

Not necessarily. Many homeowners assume holding longer reduces taxes, but that’s incorrect. There’s no “long-holding” benefit in Section 121. Once you meet the 2-of-5-year ownership/use requirement, the time you’ve held it beyond that doesn’t reduce taxes. In fact, waiting might mean missing your ideal market window, losing money on market downturns, or paying additional property taxes, insurance, and maintenance. Focus on owning and living in the home, then selling when market conditions and life circumstances make sense—not to chase tax benefits.

How Do I Report the Exclusion on My 2026 Tax Return?

Home sales are reported on Schedule D (Capital Gains and Losses) attached to your Form 1040. You’ll report the sale price, cost basis, and gains/losses. The Section 121 exclusion reduces the reportable gain. If there’s no taxable gain after applying the exclusion, you still file Schedule D showing the transaction but reporting zero taxable gain. Your real estate closing statement (HUD-1 or Closing Disclosure) provides much of the information needed.

Related Resources

• Real Estate Investor Tax Strategies
• 2026 Tax Strategy Services
• High-Net-Worth Tax Planning
• IRS Topic 409: Capital Gains and Losses
• IRS Publication 523: Selling Your Home

This information is current as of 1/30/2026. Tax laws change frequently. Verify updates with the IRS or a qualified tax professional if reading this after January 30, 2026.

Last updated: January, 2026